Secret French Plan In the European War Of The Automakers

“Volkswagen has chosen to wipe out PSA,” a source in President François Hollande’s entourage told Le Monde. PSA Peugeot Citroën, Europe’s second largest automaker, is teetering. Volkswagen Group, Europe’s largest automaker, appears invincible. Its brands range from entry-level Škoda to exotic Bugatti, with SEAT, Volkswagen, Audi, Porsche, Bentley, and Lamborghini in between. It wants to reduce overcapacity in Europe “on the backs of the French,” the source said. But now a secret plan has seeped from the woodwork at the Ministry of Finance—a desperate, misbegotten, taxpayer-funded deal.

The new car market in France is morose. Sales in 2012 dropped 13.9% from the miserable levels of 2011. PSA sank even deeper into that quagmire, with sales dropping 17.5%. All hopes had been riding on its new Peugeot 208 that hit the streets in the fall. But hope has turned into disappointment. An initial restructuring plan was nixed by the government. Nevertheless, PSA will shutter its plant at Aulnay (Seine-Saint Denis) and lay off 8,000 people ... by 2014 [As Cars Burn In France, The Industry Of Hope Booms].

The company has been bleeding cash. Its finance subsidiary, Banque PSA Finance, was bailed out by taxpayers last fall to the tune of €7 billion—a bailout that came under heavy fire from Renault, Ford, and the German state of Lower Saxony, which owns 20% of Volkswagen.

Saving PSA without major restructuring, and layoffs, has become a government priority. Economy Minister Pierre Moscovici, who is rumored to be close to the Peugeot family—which owns 30% of PSA—dropped some hints about the secret plan Sunday evening. He was discussing PSA, “a strong company” that happened to be in a “severe crisis.” More government help? “It’s without doubt necessary to go further,” he said. “It would be up to the executives to initiate the rapprochement that they find useful, and we are here both to accompany them and to weigh in that direction.”

Then the leaks emerged. “If car sales collapse in Europe as they did in 2012, PSA won’t make it through the first half,” a source at the Ministry of Finance toldLe Monde.

Bailouts are designed to protect stockholders, bondholders, and other stakeholders, especially the elite—such as the Peugeot family—at the expense of taxpayers. A real restructuring through a bankruptcy, after the model of GM, would wipe out the Peugeots’ investment and would slam the banks that own much of the debt. Not a good option.

Hence the secret plan. The government is deeply worried about Volkswagen’s strategy of lowering its prices in Europe. The source explained the thinking: Volkswagen can afford it as it sits on €25 billion in cash, but PSA cannot afford it.

A form of governmental dementia. Volkswagen, despite lowering its prices, is immensely profitable. It’s not a perceived pile of cash that gives it the power to lower prices, but its operating efficiencies, cost structure, and booming sales in China and the US. But even Volkswagen’s sales dropped 5.1% in France last year. The marauders in Peugeot’s and Citroën’s backyard were Kia and Hyundai whose sales, albeit a fraction of those of the giants, jumped 18.1% and 42.2% respectively!

Nevertheless, to throw a monkey wrench into Volkswagen’s presumed strategy of wiping out PSA, the government has come up with an ingenious plan: push PSA to acquire GM’s European subsidiary that has been bleeding to death for years, and whose sales in France have crashed last year by 23.8%—Opel.

Simple: take two dying cats and make a healthy one out of them. And do so without major surgery. Or, as Le Monde’s source would have it, build a European champion able to resist the German attacks.

The idea had bubbled up in September as PSA and GM were nitpicking through the details of their new alliance. GM ought to trade Opel for more shares in PSA. But GM rejected it; it was already stuck with 7% of PSA and didn’t want to get dragged deeper into the quagmire. GM had also been scared off by hot-headed declarations of various government officials in response to PSA’s now nixed restructuring plan. Explains the source at the Finance Ministry: “The only way to convince the Americans would be for PSA to buy Opel directly.”

There are some roadblocks. PSA doesn’t have the means. It would require an infusion of government capital, which has been discussed over the last few months, particularly during the Banque PSA Finance bailout. But the Peugeot family stonewalled a dilution of its holdings. And there was resistance among some elected officials and within the Finance Ministry. “It would nationalize the losses of a private company that is responsible for its own difficulties,” groused an enraged bureaucrat.

Indeed. And it would create the worst possible automaker, one that would not be able to exist without taxpayer subsidies. Both are lousy players in the same tough markets with uncompetitive products in the very segment that is in most trouble, the mid-range. But it might be a relief for GM, which for years has been desperately trying to shed Opel. If it could just get unstuck from PSA as well.

And more on governmental dementia, by Bianca Fernet, stilettos-on-the-ground economist in Argentina. The dust has settled—for the time being—from the drama of the US Court rulings regarding Argentina’s payment on defaulted bonds. But it remains a confounding snaggle. And an appeal is coming. It will certainly be a titillating February. Read.... Argentina’s Bonds, Defaults, and Vultures.

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Opel exists now since 150 years. Opel is a good company still now. But GM is a shitty company and they are idots too.

From a technological point of view is Opel the most valuable part of GM. The Opel cars can compete in the very difficult German market despite, VW, Audi, BMW, Mercedes Benz, Porsche etc.. People in Germany see Opel as a good and modern car producer not far behind VW brand in style and quality.

But Opel has one problem. Their market access is hindered by GM. Since ever Opel was not permitted to expand into the growth markets of this world, China, Russia, India.

Europe inkl UK are shrinking markets as the numbers of sold cars shows clearly. All companies sell much fewer cars as compared to the years before. But business is booming in the growth markets but not for GM because they are technological outdated and are not present in these markets with their most suitable car brand, which is Opel. GM is the undertaker from Opel. But Opel is of high value still now.

My opinion is, GM will close Opel factories and is going to try to use the Opel technology worldwide under the GM brand. Good luck. They owned Opel for 50 years plus and all they did during that time was to hold Opel down and away from future markets. They should have made Opel strong instead and used the Opel technology on a worldwise scale for all GM brands. By doing so, GM would be in a much, much better situation, also in the USA.

Well, VW after all was meant to be a people's car as the name Volkswagen implies. A Volkswagen for every good 'burger' (citizen, not piece of meat or wanna be meat). Since Germany won WWII in October 1989, Germany and therefore VW dominating the European car market could have been expected. Don't you just love it that in Europe we all have become 'brüders'?

1° Marrying yourself to GM in Europe is the kiss of death. Ask Saab, the day GM bought them it spelt their inevitable demise.

2° French Colbertist national champion model protectionism will not work. France already has Renault as big car maker. Italy has Fiat. So PSA is the odd man out, as its Francocentric in terms of design and manufacture, not outsourced, in a market that has only one way to go in the current economic doldrums : SHRINK. Hi cost-low margin companies are dodo.

3° The euro car market has to restructure further. It means that PSA/Renault/ GM/Ford/Fiat and subsidiaries will have to shrink more.

4° THe German car industry is tops; both upmarket and middle/down market. Awesome challenge. But it will have to outsource more and more to cheap fabrication centres all over Euro zone.

5° THis industry is a case study of how first world will lose out to BRIC world. In ten years time, I don't see much car production in rich Europe. Car designing yes, but not total car production except for the most important components : engine, gear box and electronics/robotics/new car body components.

Globalisation and new energy trends will reshape the industry on a new basis.

This French socialist government never stops "knee jerking". Like the US or Japan or Cameron's UK.

Its the malaise of the times and its called first world financialista decadence chimes.

If Club Med goes poor bigtime and breaks away from rich north it could change the nature of Euro manufacturing.

"Marrying yourself to GM in Europe is the kiss of death. Ask Saab, the day GM bought them it spelt their inevitable demise."

Sure worked out that way.

I'd said it a long time ago that four cylinder turbos were going to be the future. Also thought that hatchbacks had lots of utility. Sure enough, there are now lots of cars with both these features. I suspect that even if Saab had continued to build them (improving them along the way) that they still might have failed- main problem was production volumes (cost and unable marketing was never able to really put them up on top).

Obama and his UAM GM gang also shoved a knife is Saab's back. Saab ask for a release so they could be saved by either Chinese or Dutch firm to avoid liquidation but GM made sure to block it. I forget the details.

The major problem is there is too many car brands and factories. It was bad as early as the late 1970s. The addition of good quality Korean cars made the situation worse. France is the odd man out now. Opel/GM is another one facing oblivion. Ford generally has pretty good stuff for the middle class but the have been running as fast as they can just to survive in Europe.

The USA is a joke with UAW/Obama/GM and UAW/Obama/Fiat/Chrysler. GM should have gone through bankruptcy and Chrsyler should have been liquidated or merged with GM in bankruptcy. The biggest mistake the Germans made was Daimler/Chrysler and BMW/Rover. Fortunately for the Germans, they saw both as another Stalingrad.

OBaAmerica and money printing has been a disater for the USSA and Europe but the Europeans love Obama.

I suspectthat the french govt. has pressured the auto companies to support the ailing steel companies contributing to their high production costs. The korean companies no doubt build their cars with steel produced by korean steel companies but these companies are efficient and profitable. If i lived in France and bought a car it would be a old used car because then 5 million muslims like to burn other peoples cars. Socialism is a govt. cluster orgy where every one shares their STDs. Socially transmitted diseases.

There are some unique good aspects to the French cars, the comfort and the styling

The seats are often extremely comfortable ... more so than in the German cars

And the styling is sometimes terrific, like the Peugeot hatchbacks ... Amazingly good-looking for what, from other auto-makers, is a utilitarian small car

Tho one of the most beautiful French cars was the Peogeot 406 coupé designed by Pininfarina ...

But even the German auto-makers need to look out for the Korean cars

Korea is at the top of the global game in design and manufacturing now, the TVs and screens, the phones, and the cars too .... People here 'get it' that the Korean cars are super-reliable and at a terrific price point

Sorry, but if you're happy with mediocre you buy Peugeot or Renault. If you wanted the best French Design and Engineering then Citroen was the only choice. No question whatsoever.

Peugeot was building cookie-cutter lookalike mass media crap when Citroen were developing the DS 180, 2CV (frigging awesome, self-levelling suspension, frugal as hell, and so reliable they never needed significant servicing until they were well clapped-out!), the BX - entry level Rolls Royce / Bentley standard suspension, or the XM - to quote "What Car" - "at 70mph it's like sitting in your favourite armchair watching the road smoothly and almost silently whizz past".

I owned an XM MkII Turbodiesel wagon - and clocked up 200,000 miles in that monster. Providing it was maintained by real Citroen agents it was reliable, and was capable of returning 45mpg at 70mph (yes you DID read that right!) Top speed of over 130mph, slight wind noise at 100mph, but with plenty of power still on tap to overtake quicky and smoothly even at that speed. Tended to eat Michelin Pilot tires (dear!) but safe as hell - with the trademark Hydropneumatic suspension system - just like Rollds Royce and Bentley. No diving, no rolling, no scary momnets - just control like no other vehicle I've owned since!

Best car I ever owned. Had to sell it when I left the UK. Since it was entirely Citroen serviced, I actually got a good deal on final sale - so the "expensive" servicing was not entirely wasted!!

It's good if you like the seats and the styling; so you'll look good and feel good sitting in it when it doesn't run. I examined a Peugeot a local friend was considering buying and concluded that it was designed by people who were demented. If you gave me one; I'd set fire to it.

As an ex-Peugeot 307 HDI owner I can fully agree with you. Warranty? crap (plenty of "get out" clauses even if you use expensive Peugeot service!). Reliability? I always thought diesels were economical and reliable?? Obviously not if they are modern Peugeot. Marginally (and I DO mean MARGINALLY) better MPG than the petrol equivalent, more than compensated for by astronomical routine servicing costs, and reliability? - heading for auto box replacement after 160,000km.

To put this in perspective, the Ford Falcon and Holden Commodore gearboxes have their FIRST MAJOR SERVICE at 250,000km. and they handle power inputs from a far more powerful engine!

Hyundai and Kia build cars / vans that compete with Peugeot at all model classes, and offer far better warranties (which they actually DO honour!), far lower servicing costs, better performance / economy (particularly KIA - their 2.2 turbodiesel is also used by Hyundai in many of their diesel cars and 4WDs), and a far lower purchase price.

Unless the French Manufacturers can match (or beat) the Koreans (which they won't) it matters little if they merge with Opel, Volks, Mercedes or whoever - Korea has the technology, the NEW factories, and the vehicle innovation research and design base to become THE major supplier to Asia certainly - so bye bye Toyota too since that's another brand that the Koreans easily surpass in all the customer-important criteria - warranty, purchase and ownership costs, and long term reliability.

"Korea is at the top of the global game in design and manufacturing now, the TVs and screens, the phones, and the cars too .... People here 'get it' that the Korean cars are super-reliable and at a terrific price point"

Read the book "ten things they didn't tell you about Capitalism" it contains factual infomation about Korea that I guarantee will make your head explode; plus you will understand something that very few people understand.

What's a small bearing import company to do in Peru if the Americans won't even SELL to it? The Koreans treat us right. Their price / value balance is excellent. They were very decent to me when I visited them in Korea last May.

Oh, and Hyundai (2011) beat mighty Toyota in number of new units sold in Peru (though not in dollar value).

So, I really don't care (but I did download the "23 things" just referenced above, FMI) if they are "capitalist" or not. They sell to us (we are their Exclusive Distributors in Peru) at good prices (Peru is poor), and THAT means a lot more then any pdf...

Cars must be seen as at best secondary industries of the 21rst century - much like railways post Great war.

Sure make cars to run on the already built roads - but its time to run down the road capital base for rail & tram again.

Impressive corporate helicopter ride showing the path of the tramway de Besancon.

Already major work is ongoing but the band like structure and density of the city along the riverbank is shown in stark relief.

“Besancon plans to build an east-west tramway line including a short branch to the main station for completion in 2015. With 120,000 inhabitants, Besancon will be one of the smallest French city with a new tramway system. Nonetheless, comparable ridership to other French systems is expected because of the band structure of the city.”

Mercedes that'll last 20 years? Won't be an E Class then - seeing as they're at the bottom of the larger prestige vehicle reliability list! Won't be a C Class either since they're less reliable than Ford saloons!!

Just before I left the UK I did a locum in the ED of a small District General Hospital - Wisbech Hospital. The sole fulltime Pharmacist's husband was at that time Service Manager for Mercedes Norwich.

Guess what he drove - a Ford Sierra. Why? 'cause even with full Staff Discount, the Mercedes models he could afford were just too unreliable and costly to own, so he bought Ford . . . . .

And he was paid VERY well indeed seeing as they poached him (and his customer base) off Mercedes Peterborough.

"It's the Franc or bust in my view"--. Yes. France has an economy very much like Greece; only larger and more nearly balanced; but not balanced. they only had to devalue the Franc every once in a awhile; whereas the Greeks devalued the Drachma every 18 years, or something, (don't remember exactly). the Euro plan was typical Socialist "thinking". A dream to replace unpleasant reality. Now, finally, they get to say; it's our money, and your problem. Except, of course, they're all in the same leaking boat.